{"id":21092,"date":"2021-07-26T09:29:14","date_gmt":"2021-07-26T09:29:14","guid":{"rendered":"https:\/\/www.tatacapital.com\/blog\/?p=21092"},"modified":"2025-09-24T06:55:36","modified_gmt":"2025-09-24T06:55:36","slug":"importance-of-tax-saver-funds","status":"publish","type":"post","link":"https:\/\/www.tatacapitalmoneyfy.com\/blog\/investment-guide\/importance-of-tax-saver-funds\/","title":{"rendered":"Importance of Tax Saver Funds"},"content":{"rendered":"\n

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The amendments to the Union Budget 2020 have made it clear that mutual funds will be taxed in a classical manner. This means your returns will be added to your taxable income and taxed according to the slab rate. However, the Income Tax Act’s Section 80C is a basket of goodies in which provisions for tax savings are provided. One such provision is tax-saving funds or Equity Linked Savings Scheme (ELSS).<\/p>\n\n\n\n

Let\u2019s understand these funds and their importance in detail.<\/p>\n\n\n\n

What are tax-saving funds?<\/strong><\/h2>\n\n\n\n

As the name suggests, tax-saving funds let you avail of income tax benefits on MF schemes. They are also termed as Equity Linked Savings Schemes (ELSS) as they invest a significant portion of their assets, as much as 60%, in equity-oriented funds.<\/p>\n\n\n\n

If you invest in such funds, Section 80C states that you are eligible to avail tax exemptions, up to Rs. 1.5 lakhs, on your yearly taxable income. Tax saver funds come with a lock-in period of three years.<\/p>\n\n\n\n

Additional Read: <\/strong>What Are ELSS Funds?<\/a><\/p>\n\n\n\n

Advantages of tax saving funds<\/strong><\/h2>\n\n\n\n

Given the high volatility of the equity market, the tax-saver investment option of ELSS is a much-needed relief. Besides the obvious reason for tax savings, here are a few other reasons to invest in these funds –<\/p>\n\n\n\n

Short lock-in period<\/strong><\/h3>\n\n\n\n

The lock-in period is merely three years, after which your investments become liquid. Plus, this helps you build a sense of financial discipline.<\/p>\n\n\n\n

Higher returns<\/strong><\/h3>\n\n\n\n

Since these funds predominantly invest their corpus in equity, you will invariably yield higher returns over the long term. However, if you are worried about the risk factor, don\u2019t be! Just follow the simple practices of portfolio diversification and rebalancing from time to time, and you should see your investment grow significantly.<\/p>\n\n\n\n

Long-term value<\/strong><\/h3>\n\n\n\n

Equity funds are known to generate considerable wealth in the long run. So, if you do not redeem your funds after the lock-in period and allow them to grow, you will be able to meet your investment goals with ease.<\/p>\n\n\n\n

Provision for systematic investments  <\/strong><\/h3>\n\n\n\n

Tax-saver mutual funds<\/a> offer a systematic mode of investment. If you don\u2019t want to invest a lump sum yet, just start with the Systematic Investment Plan (SIP),<\/a> in which you can invest a fixed sum every month. This amount can be as low as Rs. 500!<\/p>\n\n\n\n

Are ELSS funds the ideal option for you?<\/strong><\/h2>\n\n\n\n

The golden rule is that it is quite challenging to go wrong with three to four high-performing tax saving mutual funds in your investment portfolio. You should consider investing in these funds, particularly if \u2013<\/p>\n\n\n\n